In the same week that Sears Holdings missed its $134 million dollar loan payment and was forced into bankruptcy we are once again reminded of the absolute requirement to be market minded and vigilant looking to identify threats and market disruptors that can either threaten or empower your business. High profile failures like Sears represent lessons for all of us. When we look at the history of Sears in the light of perennial winners like Berkshire Hathaway under the leadership of Warren Buffet, we can begin to see how advantage can be created and to how to avoid pitfalls.
It was in 1896, 9 years after its founding that Sears, Roebuck, and Company announced that it was “The Cheapest Supply House on Earth”. Sears wasn’t in fact a supply house, they were a mail order only business and their first retail store was not to be opened for another 30 years -- in 1925. Sears grew quickly in retail and spread out in other areas as well forming Allstate Insurance, developing brands like Craftsmen and Kenmore and acquiring brands like Dean Witter Reynolds, Discover Cards, Coldwell Banker, and Lands’ End. But at the core; however, Sears was always retail and almost as if the management of the company insulated itself from the retail market in 1973 when it moved to the 110 story Sears Tower in 1973, the market slowly and inexorably went against them. First the ascendance of big box retail like Wal-Mart, Home Depot, and Target in the 70’s and 80’s that took shoppers out of the malls and away from Sears and then the juggernaut which has been online sales and Amazon made their labor intensive model of retail delivery unsustainable. It is a great story and our economy is richer and more efficient because of what others learned from their operations. Sears was a huge market disruptor, they kept at it until the end, and may find renewed life in bankruptcy. As they say, the jury is still out.
Lessons abound from the Sears case study and I am sure the business will be debated and studied for years to come. How did it happen? It’s a chicken or egg scenario. Why didn’t they see what was happening? Why didn’t they react? Even locally as industrial behemoth General Electric struggles, there are countless managers, consultants, and analysts second guessing their moves. Everyone can’t be right. Scott Davis the lead analyst and Melius Research lobbed out
“GE needs to find and embrace simplicity.”
Now team, let’s go execute on that! An important challenge for a company that has taught business leaders so much and that should be able to lead but once again from inside it is sometimes hard to have appropriate perspective.
In today’s US economy we are invigorated by a whole sub-economy of disruptors; the type of disruptors that have to potential to have transformed or saved an ailing firm like Sears and readers would be advised to pay heed. They are strengthening our economy and markets in ways that we never could have imagined. A quick Google (disruptor) search in Industry verticals where Hamilton Cornell works finds FinTech, InsureTech, MarTech, HRTech, Health Tech, Industry 4.0 –
enabled through the LEAN 2.0 methods that Hamilton Cornell employs, (a topic for another posting), a slate of Supply Chain and Delivery innovators that are blowing up traditional models. Just Uber to the airport to get the cheap flight you booked on TripAdviser so that you can get to the AirBnB you rented and paid with Venmo (having bought a Jetty supplemental renters policy) while making sure your Drizzly and Amazon deliveries get there ahead of you. In the same way that Sears’ years of innovation and process optimizationhave ultimately made our (not the Sears’ investors) lives better, these disruptors are and will do the same for all of us. That said, change is not easy and it is important, even in the most staid business settings, to embrace it.
Disruptors are irritants – the type of irritant that managers need to find or create -- and they most always result from keener market insights and a better resolution of customer needs than models they threaten. Consider the fact that a pearl begins its life when an irritant like a piece of sand enters between a pearl oyster’s shells. It is the results of the oyster's natural effort to protect itself by covering the irritant with shell like material. Cultured pearls are formed when pearl farmers (which I liken to good coaches and good managers) embed a grain of sand in the mollusk – and the oyster does the rest. One should note that it can take 3-6 years to grow a cultured pearl so the process should be deliberate and also be mindful of the gestation period for creating a beautiful outcome.
Whether it is a technological development from a self-supporting market disruptor, a new high powered sales person who outperforms her peers, an add on technology that automates something that had been manually done, or a well-funded direct competitor opening up next to you or in your market space, these types of disruption have the potential to raise everyone’s game.
More importantly, you need to plan for it and often create disruption where they may be none.
As uncomfortable as the notion seems, winning teams are built on conflict. They are forged from the competition for scarce resources and are created out of near constant disruption. This is as much the case with team members vying for starting position on a championship football team as the lead violinist for the orchestra, the lead software developer, lead mechanic, consultant, or lawyer. Competition and striving develop self-respect, confidence, and trust in teams.
Successful managers and business coaches must learn to invite and manage the type of conflict that will allow them to be most attuned to the market around them and that harnesses the power of the people within. In 1750, the Scottish philosopher Lord Kames is quoted to have said
“The happiest society is where law and culture match”.
At once this harkens to a Kumbaya image of human and spiritual unity – but not so in a world of disruption. Today’s global and uber competitive economy demands that you build a law and culture that are supported by constant disruption because threats to your business can come from anywhere.
We work a lot with our clients on transformation and change; and as well on preparedness and attitude. A great example of preparedness, teamwork, attitude, and dealing with the adversity that disruption can cause is the recently completed Volvo Ocean race which pitted seven 14 person teams in a grueling sailing race around the world and through some of the most treacherous seas imaginable. All teams accepted the uncertainty, forged their teamwork and performance on constant danger and disruption and entered into the race joyfully with the expectation that winning would be a test of mental and physical effort.
They needed to have the right attitude, constantly, evaluate the environment they were in (your market), adjust, plan, and execute. So, while you are waiting for the next Sears catalog to arrive or that pearl to be formed, you might do the same.